The National Association of Realtors released a report Tuesday that said foreign buyers and recent immigrants spent an estimated $153 billion on American properties in the year ending March 2017. That was a 49% increase over the previous year and the highest level since record-keeping began in 2009.
The purchases accounted for 10% of the total value of existing home sales in the U.S. The report did not include new homes.
Pointer from Scott Sumner, who writes,
the sale of homes to foreigners does represent a US export, and creates lots of goods jobs for American blue collar workers. (Note that it doesn’t really matter whether they buy new or existing homes; the net effect on the housing market is the same.)
When a house is built, that counts as GDP. But when an existing house is sold, that is not new production, so it does not count as GDP.
Suppose an existing house gets sold by an American family to a someone in China or Canada, who leaves it vacant. Next, a new house gets built to house the American family that still needs to live somewhere. The new house gets counted as GDP. It seems to me that if you counted the sale of the existing house as an export, then that would be double-counting. So I am not with Sumner here.
I am more interested in the statistics in the article. Let us suppose that these foreign owners are not choosing between renting and buying in the U.S. They are buyers only, with no thought of renting. Let me guess that these Chinese and Canadians are just a bit more likely to be buying houses in San Francisco or Manhattan than in rural Ohio. Then this might help to explain why price/rent ratios are so divergent within the U.S.
Note, however, that the foreign owners might still be interested in renting out the properties they buy. In that case, the ratio of price to rent should still matter to them.
As a NYC resident I can tell you that many buildings are known for being predominantly foreign-owned…and are 95% dark at night.
Enough with the racist dog whistles!
With LEDs, we will have so much light pollution, we may have to mandate compact fluorescents because they are always broken.
“mandate compact fluorescents because they are always broken.”
That’s how CFL’s save energy!
Another dial that is probably pro-cyclical that we could use for demand smoothing but are probably using to make it worse.
“In that case, the ratio of price to rent should still matter to them.”
True, but not all foreign purchases of US homes have anything to do with real estate investments. The economic loss to the buyer of Trump’s Palm Beach mansion was substantial, destroying the home and selling the land(or trying) after it sat empty for seven years after the purchase. Obviously, price/rent played no factor.
Then you have the Kushners selling visa for real estate investments. I am thinking the visas are a much larger factor in the decision to invest in real estate than the real estate.
Why the hell do we allow foreigners to buy U.S. real estate (I.e., jack up prices for natives) when it’s obvious that most of the foreign money flowing in is ill-gotten? At a minimum, I would impose huge transaction taxes, and double property taxes, on these clowns.
“They are buyers only, with no thought of renting.”
They are renting, from themselves. Buying a home that mostly sits empty will affect the local rental rates just as it would affect the local price. In Texas that effect will be negligible. In New York or California, it will be something, although it is likely a small % of the total price difference.
This paper estimates the effect on price in New York City is about 1%.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2922230
That NAR report shows a surprisingly small amount of foreign buying in New York, and similar amounts of foreign buying in California, Texas, and Florida. I think you will find that for every oligarch with a penthouse suite in Manhattan, there are 10 southeast Asians moving to Tulsa to work as engineers. This is certainly a case where politics will not be about policy. It will be about what gets our cackles up.
A friend of mine said that the optimistic interpretation of these stories is that the market predicts things will be as good in the US as anywhere for the foreseeable future, which is a relieving tonic after one is exposed to a steady stream of alarmist doom and gloom.
An interesting quote from an article by Greg Mankiw:
[Quote]
“One point of view suggests that the trade deficit is no big deal. If Japan were to start buying large quantities of steel, lumber, glass, and furniture from the United States, we would call that an export and our trade deficit would shrink. But if instead Japanese investors buy office buildings in New York made of American steel, lumber, glass, and furniture, that purchase is a capital account transaction. Because there no reason to prefer that Japanese buyers take delivery of their steel, lumber, glass, and furniture in Tokyo rather than New York, one can argue that we shouldn’t be terribly concerned about the trade deficit.”
—Greg Mankiw
Assets are different then consumption. When we both trade consumer items to one another each party still owns its own country. When one sells its assets to buy consumer items eventually you are left with foreigners owning your entire country and you working for them. Here’s a hint, being an owner is better then being the debtor.
It’s notable also that you refer to steel and glass, two rather unimportant items in valuing NYC real estate. Land is the most valuable item, and as Gene Hackmen’s Lex Luthor pointed out, “they just aren’t making any more of it.” Certainly not in the central hubs of great centralization cities.
Arnold, the economics is interesting, but to me the question should preclude economics and instead consider whether housing *should* be able to be bought by non-citizens.
Vancouver BC has a 15% foreign buyer tax. It slowed down the frenzy for about 9 months, but now they seem to have fully recovered.
Seattle had the hottest real estate market in the US last month. My RE friend says there are more foreign buyers than before due to the BC tax.
Let me guess that these Chinese and Canadians are just a bit more likely to be buying houses in San Francisco or Manhattan than in rural Ohio. Then this might help to explain why price/rent ratios are so divergent within the U.S.
1) Yes, throw in LA & Seattle along with the rest of the West Coast.
2) It is very heavily cash buying here so that is one reason coastal prices are high but mortgage debt is only having modest increases.
3) Yes it does a lot for the sellers of the high end properties.
I am shocked. RE prices are determined by location, location, location?
Damn. I cannot keep up with the world of 2107.
Technical question from a non-economist: isn’t there some accounting identity that say GDP == total income of all people making up the “D”?
So in this case we are claiming that when a house is sold to a foreigner, the seller gains money but loses a house so the net “income” is only the marginal value of having sold a house she wanted to sell (which would be the same if the buyer were domestic).
Does that mean that some valuation of goods must always come into a calculation of GDP or is there some way of defining it purely in money terms?
“It seems to me that if you counted the sale of the existing house as an export, then that would be double-counting”
The existing house was originally sold to an American and, thus, was not counted as an export. The new house, also sold to an American, was not counted as an export. So, we have two houses, the existing one owned by Chinese/Canadian and the new one owned by the American. Yet, somehow, neither house is considered an export. Further, some might view it differently if the Chinese/Canadian bought the new house instead of the existing one. I think that is what Summer is pointing out.
The problem arises because a house is produced in one year but consumed over many. If a house lasts 30 years, an American lives in it for the first 15 and a Canadian lives in it for the next 15, then half of the house was consumed domestically but half was consumed by a foreigner. It’s the same as if an American and Canadian shared the house for the whole 30 years. Suppose an American bought a 12-pack of Coke and re-sold 8 of the cans to a Chinese person. Should 8 of the 12 cans not be considered an export?